Thomson Reuters Raises Gold Price Forecast as Westerners Buy Gold
Over the last year, we’ve reported extensively on the growing influence of China on the world gold market, and the flow of gold from the West to the East. But with uncertainty created by Brexit, economic stagnation, and the proliferation of negative yielding bonds, it appears investors in the West have rediscovered the beauty of gold.
Western gold demand hit unprecedented levels through the first half of 2016, and according to a major precious metals research firm, that trend will continue through the second half of the year.
Thomson Reuters released its second quarter GFMS Gold Survey and Outlook report this week, upgrading its average gold price for 2016 based on the prospect of continued high demand:
The revision is a mark to market of the impressive gains that gold has posted so far this year, and reflecting the changed sentiment stemming from increased uncertainty from economic and political outlooks.”
Thomson Reuters upped its average gold price for 2016 to $1,279 an ounce, up from the previous forecast of $1,184 an ounce.
Analysts said the Brexit vote provided the spark that ignited gold demand in the West, but noted a foundation was already in place. As Kitco News put it:
The Brexit vote lit the fuse that caused the explosive rally in the yellow metal at the end of the second quarter, but the analysts noted that the rally was already well established in a world of growing negative bond yields and shifting US interest rate expectation. Looking ahead, the analysts said that they expect Brexit uncertainty will continue to be felt in financial markets, driving demand for gold in the second half of the year… While markets will continue to keep an eye on a fallout in Britain and Europe, the analysts said that new drivers for the gold market could be a weakening Italian banking sector, lower interest rate expectations and the US presidential elections in November.”
ETF demand in the first half of the year hit record levels. Global gold reserves increased by 568 tons. But western demand for physical gold was also robust.
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All of the major mints saw significant increases in gold coin sales in the first six months of 2016. The US Mint sold 21.1 tons of gold bullion coins in the first half of the year, with more than half of the demand coming in the second quarter. As a comparison, the mint sold 21,500 ounces of American Gold Eagles in 2015. In May of this year, it more than tripled that, selling 76,500 ounces.
Overall Asian demand has sagged a bit and Thomson Reuters projected it will remain lackluster through the second half of 2016. Nevertheless, mom and pop investors in Asian countries are still buying gold, with little old ladies in China leading the way. Many Japanese investors are buying gold and storing it in overseas vaults due to economic uncertainty there.
Earlier this week, we reported there is no more easy gold to mine, and supplies are likely to contract in the future. The Thompson Reuters report bolstered that view:
We expect that mine supply will contract in the second quarter, with the total estimated at 770 tons, a 2% year-on-year decrease, with losses expected in China , Mexico and Mongolia . More broadly, there are relatively few new projects and expansions expected to begin producing this year, and those in the near-term pipeline are generally fairly modest in scale, hence our view that global mine supply is set to begin a multi-year downtrend in 2016.”
The first half of 2016 was fantastic for gold. Based on Thomson Reuters analysis, it appears the second half of the year will continue that trend.
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